Democracy and Governance in Bosnia-Herzegovina
The Development Challenge: Bosnia and Herzegovina (BiH) has come a long way in the nine years since the end of the war. The economy has recovered substantially. Gross Domestic Product (GDP) growth is projected to be 5% in 2004, up from an estimated 2.7% GDP growth rate in 2003. More than one million refugees have returned to their pre-war homes. The banking sector has flourished, with numerous foreign banks entering the market, increasing the availability of credit. Bosnians have administered two free and fair elections. These achievements were made possible by the presence of NATO troops, adherence to the Dayton Peace Accords, and, in some cases, intervention by the Office of the High Representative (OHR).
Nevertheless, as the country strives toward European integration, it is becoming increasingly obvious that more responsible, effective, and efficient government in Bosnia is necessary for long term political stabilization and economic growth. Too many layers of government, especially in the 10 canton-Federation, have created poor definitions of responsibility and insufficient financing. Some improvements in the governance structure have been made. The Federation Constitution was amended prior to the municipal elections in October 2004 to enable the direct election of mayors.
On the economic front, while the country has achieved a remarkable degree of fiscal stability, the current account deficit (imports are three times exports) indicates that BiH has not yet managed to become competitive on the regional or the world market. Employee pension and social welfare contributions are too high and have contributed to the growth of the informal economy, a sector that may account for as much as three-fourths of the employment of young people. The dearth of foreign investment in BiH is also a significant factor in its slow development. Small market size with little spending power, weak rule of law, and poor or non-existent infrastructure all impede investment. BiH's main assets are its natural resources including hydro-electric power, which has the potential to make BiH the region's only electricity exporter.
Bosnia and Herzegovina's growth as a state is further stymied by a lack of consensus on a shared vision. The Serb entity is fiercely protective of its separate status and resists attempts to consolidate governance at the State level. Nonetheless, progress has been made in establishing a State-level Ministry of Defense, intelligence service, indirect tax administration. In addition, steps have been taken to establish a value added tax. Hard-line nationalist parties are still in power and often lack the political will to effect change, while opposition parties, especially in the Federation, remain weak and unfocused. BiH still functions as an international protectorate with the OHR acting as the ultimate governing authority. While OHR has certainly driven the reform process, their continuing international presence has also stifled political maturation by allowing politicians to avoid responsibility for taking tough decisions. This lack of ownership has delayed a thorough implementation of certain reforms.
U.S. anti-trafficking efforts helped BiH move from a Tier Three country to Tier Two and are ensuring BiH does not become a country-of-origin for trafficking. USAID assistance in creating new laws and robust institutions will help prevent terrorists from using BiH to threaten U.S. citizens and interests, a high priority goal. The overriding U.S. interest in BiH remains the conversion of this multi-ethnic country from a source of regional instability to a peaceful, viable state on the road to European integration.
(Excerpted from the 2006 Congressional Budget Justification for Bosnia-Herzegovia)
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